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Why Dividend ETFs Can Still Work


Treasury yields have spiked recently but solid dividend ETFs are still paying out more, which brings the focus back to dividend-yielding stocks. Investors should look for dividend exchange traded funds that have potential for growth and the possibility to raise dividend payouts.

Of course, that doesn’t mean investors should substitute dividend ETFs in place of bonds. But dividend ETFs can be used to boost yield on the equity side of the portfolio.

“There are different types of income-producing stocks that fail to meet the 4% threshold but should still hold great appeal. These are the stocks with fairly low yields right now, but look poised for robust growth, which should set the stage for future yields well above 4%, using today’s prices as a basis,” David Sterman wrote for Street Authority.

As interest rates tick upward, most analysts agree that the yield on a 10-year Treasury note will not go above 4%. This voids the argument for holding CDs or bonds, which are tied to the moves in interest rates. [A New Dividend ETF With The Right Sector Mix]

The mix of solid current dividend streams with the possibility for big price appreciation supports the notion for investors to seek dividend ETFs for future income.

“Companies with a long history of dividend growth display high returns on equity (ROE),” according to WisdomTree’s head of research, Jeremy Schwartz. The companies in the widely followed NASDAQ US Dividend Achievers Index had a 22% annual ROE over the past 10 years, according to Schwartz, compared with 13% annual ROE for all companies in the S&P 500. [Tech Focused ETF with a Dividend Twist]

The new WisdomTree Dividend U.S. Dividend Growth ETF (DGRW) takes the dividend growth angle, and the ETF focuses 20% of the portfolio on technology stocks. This sector is poised to raise dividend payouts. [Dividend ETFs, Yield-Producing Equities Back in Focus]

The Vanguard Dividend Appreciation ETF (VIG) is low cost at 0.13%, and focuses on companies that have a history of 10 consecutive years of dividend growth. Companies in the index have more of a growth tilt, rather than value.

WisdomTree Dividend U.S. Dividend Growth ETF

ETF, VIG, DGRW, Dividends

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.